Pensions in Pakistan Explained

In Pakistan, pensions are a vital source of income for millions of retirees, providing them with a basic level of financial security in their golden years.

The Employees Old-Age Benefits Institution (EOBI) is a key player in the country's pension system, offering retirement benefits to employees in the formal sector.

The EOBI scheme is mandatory for all employers with 10 or more employees, covering over 2.5 million workers across various industries.

Retirees under the EOBI scheme receive a monthly pension based on their average monthly earnings over the last 60 months of their employment.

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Pakistan has a pension system that is in need of reform, with only two schemes reaching a bare three million of the country's 15 million older people.

The Employees Old-Age Benefits Institution (EOBI) is Pakistan's main statutory pension scheme for workers in registered establishments, but its coverage is concentrated among registered employers, leaving many private-sector and informal workers outside the scheme.

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Employees must contribute to the EOBI scheme for at least 15 years to become eligible to receive a pension on retirement, which is available at 60 for men and 55 for women.

The EOBI scheme pays a basic contributory pension, but the actual reach is very low, covering not more than 10% of retirees, and even those who do receive a pension may only receive PKR 8,500 ($52 USD) a month on retirement, representing less than half the minimum wage.

Public sector pensions are exclusively funded through the national budget and are by far the government's largest social protection expenditure, constituting 5.7% of the total current expenditure in the federal budget or about 3.2% of GDP.

The cost of pension payments is high, and it's likely to increase to around 11% of GDP by 2050, making it a significant concern for the government.

All businesses with more than five employees are supposed to register for the EOBI scheme, but only 84,000 employers have signed up to the scheme, which reaches no more than eight million people – out of a labour force of 75 million.

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Pakistan has two main pension schemes: the Employees Old-Age Benefits Institution (EOBI) and the Voluntary Pension Scheme (VPS).

EOBI is the main statutory pension scheme for workers in registered establishments, providing old-age pensions, survivors pensions, and disability benefits to eligible claimants.

EOBI contributions are paid by employers and workers, with the law setting contribution rates and the benefit formula. Employers typically contribute a percentage of wages, while workers contribute a smaller share, as set out in EOBI regulations.

The EOBI has been the subject of policy debate on adequacy and sustainability, with many private-sector and informal workers remaining outside the scheme. In recent years, EOBI has reported growth in revenues and the government has authorised periodic increases in minimum pension levels.

The Voluntary Pension Scheme allows individuals to join privately managed pension funds administered by asset managers licensed in Pakistan. These funds can be conventional or Shariah-compliant and attract tax incentives within statutory limits.

The Mutual Funds Association of Pakistan (MUFAP) provides guidance and performance data for VPS products, helping individuals make informed decisions about their pension plans.

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In 2024, the federal government introduced a contributory pension fund scheme for new entrants to the federal civil service, where they will contribute to a defined-contribution framework.

The Ministry of Finance circular explained that the Contributory Pension Fund Scheme will apply to new hires and set out contribution arrangements and governance measures.

This marked a shift from the traditional defined-benefit pensions that federal civil servants had been receiving.

The Government of Punjab issued the Punjab Defined Contribution Pension Scheme Rules (2025), outlining account types, default fund allocations, and employer-employee contribution mechanics for provincial employees.

The Khyber Pakhtunkhwa government followed suit, setting out the rates for contributions among employee and employer.

This indicates that provinces are also moving towards defined-contribution frameworks, mirroring the federal government's decision.

In Pakistan, there are two main types of pension schemes: Voluntary Pension Scheme and Social Security.

The Voluntary Pension Scheme allows individuals to join privately managed pension funds administered by asset managers licensed in Pakistan.

These funds can be conventional or Shariah-compliant, giving individuals a choice in how their money is invested.

Individuals who opt for the Voluntary Pension Scheme can attract tax incentives within statutory limits.

The Mutual Funds Association of Pakistan (MUFAP) provides guidance and performance data for VPS products, helping individuals make informed decisions.

Social Security, on the other hand, is a mandatory pension scheme that provides a safety net for workers in certain industries.

It's a crucial aspect of Pakistan's pension system, but the details of how it works are not specified in the provided article section facts.

Pensions in Pakistan can be a complex and challenging topic. Many people struggle to understand their pension options and how to make the most of them.

The biggest challenge is that many Pakistanis are not aware of their pension entitlements, with only 12% of the workforce registered with the Social Security Institution.

The pension system in Pakistan is also plagued by a lack of transparency and accountability, making it difficult for people to access their pensions.

The benefits of a well-managed pension system are numerous, including financial security in retirement and a guaranteed income for life.

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